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Saudi Arabia’s 2025 Real Estate Transaction Tax Regulations: Important Updates Businesses Need to Know

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  • Saudi Arabia’s 2025 Real Estate Transaction Tax Regulations: Important Updates Businesses Need to Know
  • May 9, 2025
  • Ibtasam Aziz
  • 13 Views

Saudi Arabia’s real estate sector is undergoing a major transformation. With the release of the draft Real Estate Transaction Tax (RETT) Implementing Regulations by the Zakat, Tax and Customs Authority (ZATCA) on February 15, 2025, the Kingdom aims to create a more transparent and consistent taxation environment.

The new RETT framework, set to take effect on April 9, 2025, introduces a flat 5 percent tax on various real estate transactions and sets clear rules for exemptions, valuation, and compliance.

This blog breaks down the key elements of the draft regulations, what they mean for real estate companies, developers, and investors, and how to prepare for the upcoming changes.

REAL ESTATE TRANSACTION TAX REGULATIONS OF THE KSA

1. What Is the Real Estate Transaction Tax (RETT)?

RETT is a 5 percent tax levied on the disposal of real estate assets in Saudi Arabia. Unlike VAT, which previously applied in some contexts, RETT is a standalone tax with its own structure and compliance obligations.

The RETT law was issued under Royal Decree No. M/84 on September 22, 2024, and the draft regulations now provide the operational guidelines for how the law will be implemented. Stakeholders were invited to give feedback on the draft through the Istitlaa platform by March 15, 2025.

2. Key Transactions Subject to RETT

According to the draft regulations, the 5 percent RETT applies to a wide range of transactions, including:

  • Direct sales of real estate.
  • Transfer of shares in real estate companies where real estate represents at least 50 percent of total assets.
  • Long-term usufruct rights exceeding 50 years.
  • Transfers under Build-Operate-Transfer (BOOT) project agreements.

Importantly, the tax applies whether or not the transaction involves monetary payment. That includes property transfers in restructurings, in-kind transfers, and asset swaps.

3. Tax Base and Valuation

The tax base is determined based on the fair market value (FMV) of the real estate at the time of disposal. Credible valuations must support this value and can be challenged or reassessed by ZATCA if underreported.

Buyers or sellers can present their own valuation reports from accredited real estate assessors to dispute a tax assessment by the authority.

4. Exemptions and Reliefs

Not all transactions will attract the RETT. The draft regulations outline several exemptions, designed to encourage certain types of economic activity:

  • Mergers and acquisitions (M&A) involving real estate companies, provided they meet specific structural and continuity conditions.
  • Transfers of publicly listed securities.
  • Real estate held within investment funds or REITs.
  • Off-plan sales by licensed real estate developers.

However, any exempt transaction that later breaches exemption conditions (such as failing to maintain ownership continuity) will become taxable, and the tax must be paid within 30 days of the breach.

5. When Is RETT Due?

The due date for RETT varies depending on the type of transaction:

  • For documented real estate transfers, the tax is due at the time of notarization or authentication.
  • For share transfers in real estate entities, RETT must be paid within 30 days of crossing the 50 percent threshold.
  • If a transaction initially exempt becomes taxable later, the RETT must be paid within 30 days of the exemption breach.

ZATCA also reserves the right to demand immediate payment if it believes the transaction was structured to delay tax obligations.

6. Handling Sham Transactions

To prevent tax avoidance, ZATCA can reclassify sham transactions or artificial restructurings as taxable events. For example, if a property is transferred under a corporate restructuring but intends to avoid RETT, ZATCA can impose the tax retroactively.

ZATCA has up to three years to reassess any transaction it suspects was misreported or under-declared.

7. Compliance and Taxpayer Obligations

The primary tax liability falls on the seller or transferor. However, if the buyer is found to have assisted in tax avoidance, they can be held jointly liable. Taxpayers must:

  • Register relevant real estate transactions with ZATCA.
  • Submit tax filings within the prescribed timelines.
  • Maintain complete records of each transaction.
  • Ensure exemption conditions are continuously met, where applicable.

Failure to comply could result in penalties, disqualification from exemptions, and reassessment of tax due.

8. Dispute Resolution and Appeals

Taxpayers have the right to appeal any RETT assessment through the Zakat, Tax, and Customs Committees.

ZATCA may request a financial guarantee equal to the disputed amount, especially if it believes the taxpayer may try to avoid payment during the dispute process. This mechanism ensures the government’s ability to recover tax dues while still allowing businesses to challenge decisions.

9. Transitional Rules and Pre-Existing Transactions

Transactions occurring before April 9, 2025, are subject to transitional provisions:

  • If the tax was declared at a value lower than FMV, ZATCA can recalculate the tax within three years.
  • If the transaction wasn’t reported, ZATCA has three years from discovery to reassess it.
  • Exempt transactions that later breach exemption conditions will have 30 days to settle the RETT.

These rules underscore the importance of documentation, valuation accuracy, and ongoing compliance, even for transactions completed before the law takes effect.

10. Penalties and Enforcement

Penalties for non-payment of RETT are significant:

  • A 2 percent monthly penalty on unpaid RETT, capped at 50 percent of the total outstanding amount.
  • An additional 1 percent penalty may be applied if the tax amount is adjusted before the law becomes effective.
  • Taxpayers seeking a refund for overpaid tax must submit their claim within 12 months of the implementation date.

The combination of financial penalties and reassessment risks creates a strong incentive for businesses to ensure accurate reporting and timely payment.

11. Impact on the Real Estate Sector

a. M&A Activity Encouraged

By exempting certain mergers and acquisitions, the draft regulations provide relief for companies seeking to consolidate without triggering RETT. To qualify:

  • The merger must be done entirely via share exchanges (no cash or in-kind contributions).
  • The merged entity must maintain the same ownership structure for at least five years.

This could encourage strategic consolidations, especially among real estate holding companies and REITs.

b. Compliance Responsibility

Real estate companies, developers, and institutional investors now face more responsibilities for ensuring compliance. The must do the following:

  • Stronger valuation practices must be adopted to prevent reassessments.
  • Continuous monitoring of exemption conditions is essential to avoid retroactive taxation.
  • Businesses need to implement rigorous documentation and reporting systems.

The ability of ZATCA to reassess past transactions up to three years later further reinforces the need for internal controls and tax governance frameworks.

c. Greater Market Transparency

In the long run, these regulations aim to improve market transparency. Investors will benefit from a consistent tax treatment of transactions, and the government stands to gain from better tax compliance without hampering legitimate investment activity.

Ensure Tax Compliance for Real Estate Business Setup in Saudi Arabia

Saudi Arabia’s draft Real Estate Transaction Tax (RETT) regulations signal a maturing tax environment tailored to balance government revenue generation with business needs.

While the 5 percent RETT introduces new tax liabilities, the structured exemptions, especially for M&A, REITs, and developers, offer strategic advantages.

That said, the compliance landscape will become more complex. Businesses must proactively review their real estate portfolios, corporate structures, and deal strategies to ensure alignment with the new rules and a seamless company formation in the KSA.

Partnering with tax advisors and legal experts will be key to navigating the transition smoothly and avoiding costly mistakes.

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